The Supreme Court of India in HLV Limited (formerly Hotel Leelaventure Pvt. Ltd.) v. PBSAMP Projects Pvt. Ltd. (2025 INSC 1148) has clarified the scope of awarding interest under Section 31(7) of the Arbitration and Conciliation Act, 1996. The Court held that when an arbitral tribunal has already specified the rate and period of interest up to repayment, the award creditor cannot subsequently claim additional or compound interest during execution. This ruling underscores the principles of party autonomy, finality of arbitral awards, and the limited jurisdiction of executing courts.
Factual Background
Memorandum of Understanding (MoU):
- On 9 April 2014, HLV Limited (vendor) entered into an MoU with PBSAMP Projects Pvt. Ltd. (purchaser) for the sale of land in Banjara Hills, Hyderabad.
- PBSAMP paid an advance of ₹15.5 crores.
- Clause 6(b) of the MoU stipulated that if terminated, the vendor must refund the advance with 21% simple interest per annum from the date of disbursement till repayment.
Arbitration:
- Disputes arose, and the MoU was terminated in October 2014.
- Arbitration was invoked; the tribunal (comprising Justice Arijit Pasayat as presiding arbitrator) passed an award on 8 September 2019.
- Award Terms: Refund of ₹15.5 crores with 21% simple interest from the date of payment until repayment.
Post-Award Developments:
- HLV filed a challenge under Section 34, which was dismissed in March 2021.
- The award thus attained finality.
- During execution proceedings, HLV paid approximately ₹44.42 crores (principal + 21% interest).
- PBSAMP, however, claimed compound interest/post-award interest under Section 31(7)(b), demanding an additional ₹13 crores.
Issues
The dispute revolved around a single but critical issue:
- Whether the award creditor (PBSAMP) could claim compound or post-award interest when the arbitral tribunal had already awarded interest at 21% “from the date it was given till repayment”?
This required interpreting Section 31(7) of the Arbitration and Conciliation Act, 1996, which deals with pre-award and post-award interest.
Court’s Analysis
1. Statutory Framework under Section 31(7)
Clause (a): Arbitral tribunal may award interest (pre-award) unless otherwise agreed by the parties.
Clause (b): “A sum directed to be paid by an award shall, unless otherwise directed, carry interest at 18% per annum from the date of the award till payment.”
2. Precedents Considered
S.L. Arora v. State of Haryana (2010) – Held that arbitral tribunals cannot grant interest on interest absent a contractual clause.
- Hyder Consulting (UK) Ltd. v. State of Orissa (2015) – Expanded “sum” to include principal + pre-award interest, thereby allowing post-award interest on both.
- Delhi Airport Metro Express v. DMRC (2022) – Clarified that the tribunal’s discretion to award interest under Section 31(7)(a) ceases if parties have agreed otherwise.
- Morgan Securities v. Videocon Industries (2023) – Held arbitrators may exercise discretion in granting post-award interest only if the award is silent.
- S.A. Builders v. North Delhi Municipal Corporation (2025) – Reaffirmed party autonomy in determining interest regimes.
3. Party Autonomy and Finality of Award
- The MoU explicitly provided for 21% simple interest till repayment.
- The arbitral tribunal faithfully applied this clause and awarded interest accordingly.
- Once the tribunal exercised its discretion in line with the party agreement, Section 31(7)(b) could not be invoked independently to claim additional interest.
4. Executing Court’s Limited Powers
- The executing court rightly rejected PBSAMP’s plea for compound interest, holding that it could not “rewrite or enlarge” the award.
- The High Court erred in remanding the matter for reconsideration, as this effectively reopened a concluded issue.
Supreme Court’s Decision
- The Court set aside the Telangana High Court’s remand order.
- It restored the executing court’s order dated 2 November 2023, which had closed the execution proceedings.
Key Holding:
- When an arbitral tribunal fixes interest till repayment, that determination is conclusive.
- No further claim for compound or post-award interest can be entertained at the execution stage.
- Allowing such claims would amount to modifying the award, which is impermissible.
Key Takeaways
- Party Autonomy Supreme: If parties agree to an interest regime, the arbitral tribunal must follow it, and courts cannot alter it later.
- Finality of Arbitral Awards: Once an award becomes final, execution cannot be a forum to reopen or modify the award’s terms.
- Executing Courts’ Role: Execution is a mechanical process. Courts cannot reinterpret or expand the award’s scope.
- Compound Interest Not Implied: Unless expressly provided in contract or award, compound interest is not permissible under Section 31(7).
Conclusion
The Supreme Court’s ruling in HLV Limited v. PBSAMP Projects Pvt. Ltd. reinforces the principle that arbitration is driven by party autonomy and contractual freedom. The judgment ensures that arbitral awards, once finalised, cannot be undermined by attempts to re-litigate interest claims at the execution stage. By barring claims for compound or additional interest where the award already specifies repayment terms, the Court has strengthened the certainty and enforceability of arbitral awards in India’s commercial dispute resolution framework.
Important Link
Law Library: Notes and Study Material for LLB, LLM, Judiciary, and Entrance Exams